Mercia | Taxation, Business & Finance Advisers

DUTY ADVICE (WA)

1. A company becomes a landholder to which the Duties Act applies under section 155 of the Duties Act where that corporation is entitled to land in Western Australia and the total value of such entitlement is $2,000,000 or more.
2. Once the Company has entered into the Contract, in our view, the landholder duty provisions under the Duties Act apply, so if there is a change in shareholding after the Company entered into the transaction which constitutes a “relevant transaction” under the landholder provisions, then the landholder provisions of the Duties Act would apply.
3. Under section 163 of the Duties Act, an acquisition by a person of an interest in an entity is a relevant acquisition if:

(a)       immediately before the acquisition the entity was a landholder in which the interest (if any) of the person and the interest (if any) of any related person did not amount to a significant interest; and

(b)       after the acquisition the entity is a landholder in which:

 i.        the interest of the person is a significant interest; or

 ii.        the interest of the person when aggregated with any interest of a related person amounts to a significant interest.

1. Under section 161 of the Duties Act, significant interest means a 50% interest or a greater interest, in the case of a landholder that is not a listed company.
2. Under section 164 of the Duties Act, an acquisition by a person of an interest in an entity is also a relevant acquisition if –

 (c)          immediately before the acquisition the entitle is a landholder in which –

(i)                 the interest of the person is a significant interest; or

(ii)                the interest of the person when aggregated with any interest of a related person amounts to a significant interest; or

(iii)              the interest of related person is a significant interest; and

           (d)          by the acquisition the person or any related person acquires, or the person and any related person acquire, a further interest in the landholder.

  For the purposes of sections 163 and 164 the following persons or entities are related persons:

• individuals who are spouses, or de facto partners, of each other;
• individuals between whom the relationship is that of parent and child;
• related corporations;
• a trustee and another trustee if there is any beneficiary common to the trusts of which they are trustees, whether the beneficiary has a vested share or is contingently entitled or is a potential beneficiary under a discretionary trust;
• an individual and a corporation if the individual is a majority shareholder, director or secretary of the corporation or a related corporation;
• an individual and a trustee if the individual is a beneficiary under the trust of which the trustee is a trustee, whether the person has a vested share or is contingently entitled or is a potential beneficiary under a discretionary trust;
• a corporation and a trustee if:

i.    The corporation or a majority shareholder, director or secretary of the corporation is a beneficiary under the trust of which the trustee is a trustee; or

ii.    A related corporation to the corporation is a beneficiary under the trust of which the trustee is a trustee, whether the beneficiary has a vested share or is contingently entitled or is a potential beneficiary under a discretionary trust;

• persons or entities that acquire interests in a landholder by virtue of acquisitions that together form or arise from substantially one transaction or one series of transactions;
• persons or entities that acquire interests in a landholder by virtue of acquisitions that arise from those persons or entities acting in concert with each other

A question arises in respect of any proposed change in beneficial entitlement of the shareholdings in the Company, after the Company entered into the Contract, whether such change in shareholding results in a “relevant acquisition” as defined.

The acquisition or change in shareholding of any of the other shareholders (for example the acquisition by a new shareholder of 11%) will only be a relevant acquisition if the new shareholder and any “related person” of the new shareholder or any other shareholder who is acquiring further shares and “related person holds a significant interest in the Company.  In that regard, we refer you to the meaning of “related person” as set out in section 162 of the Duties Act.

We have not clarified what constitutes a “related person” to an individual under section 162 of the Duties Act.

WHAT HAPPENS WHEN A PERSON WITH A SIGNIGICANT INTEREST INCREASES THEIR INTEREST

A question arises where an additional one percent by a party holding 50% moves to 51% whether duty is payable, advice as follows:

1. Under section 188, to calculate the amount of duty payable in respect of a relevant acquisition an amount is first calculated by applying the appropriate rate of duty to the value of the interest of the acquirer in the landholder immediately after the relevant acquisition and then, if applicable, a reduction is made under section 189.  The resulting amount is the duty payable in respect of the relevant acquisition.
2. Under section 189(2), a reduction can be made in respect of the following:

a)    an interest, other than one which cannot be excluded because of subsection (4) of section 189, that was held by the person or a related person, or by the person and a related person, before the day that is 3 years before the day on which the relevant acquisition occurred; or

b)    an interest acquired by a relevant acquisition that occurred on or after the day first referred to in paragraph (a) if duty was chargeable in respect of that acquisition, but only to the extent to which the interest is held immediately before the relevant acquisition referred to in section 188; or

c)    an interest in the landholder concerned acquired by an acquisition if immediately before the acquisition neither the landholder nor a linked entity in respect of the landholder was entitled to land in Western Australia

1. Subsection 189(4) provides that an interest in the landholder acquired by an acquisition (the earlier acquisition) cannot be excluded under subsection (2)(a) of section 188 (referred to above),  if the relevant acquisition in respect of which duty is to be calculated under section 188(1) was made under an arrangement entered into during the prescribed period in respect of the earlier acquisition.  The reference in subsection (4) to the prescribed period in respect of the earlier acquisition is to the period beginning on the day that is 3 years before the day on which the earlier acquisition occurred and ending on the day that is 3 years after the day on which the earlier acquisition occurred.

Therefore where:

(a)  under section 188, ad valorem duty is payable on the 51% of the value of the property in the circumstance outlined by you; and

(b)  if the exemption in section 189(2)(b) applies and the Office of State Revenue accepts that the relevant party owned 50% before the relevant acquisition and that duty was chargeable in respect of that prior acquisition.

Duty is effectively payable on the 1% of the market value of the property